American Dream

Does Buying a Hybrid Car Still Make Financial Sense?

Deciding if buying a hybrid car would make financial sense for your family was much easier when gas prices were at the savings-gouging rate of nearly $4.00 per gallon. Monthly commuter costs that resemble a car payment (or two) tend to bring about some clarity when deciding to go hybrid. It also adds a new meaning to the term “going green.”

But now that gas prices have plummeted to lows we haven’t seen since a short reprieve in 2008, deciding whether to go hybrid isn’t solely based on what you pay at the pump. Due to a combination of less driving and more fuel-efficient vehicles on the road, highway funds that primarily get their money through gasoline taxes are approaching bankruptcy. States are scrambling to fill in this cash flow gap, and their eyes are set on imposing new fees and taxes on both electric vehicles (EVs) and hybrids.

In light of falling gasoline prices and the potential for extra fees and taxes, does buying a hybrid car still make financial sense for you and your family?

The Initial Large Investment Could Be Offset With a Tax Credit

A hybrid vehicle could cost you up to 20 percent more than the purchase price of a regular gasoline-powered vehicle, according to Edmunds.com. If you’re getting a car loan, you’ll pay even more because of interest assessed on the higher loan amount.

While some tax incentives have expired, you’re still eligible for a federal tax credit of up to $7,500 if you purchased a plug-in, hybrid-electric vehicle (PHEV) in or after 2010. Keep abreast of the changing tax credits for both hybrid and EVs through the U.S. Department of Energy’s Tax Center.

Fuel Savings Are Variable

The U.S. Energy Information Administration calculates that in 2012, annual gasoline use cost the average household 4 percent of their pretax income (approximately $2,912). Of course, those who owned larger, less fuel-efficient vehicles were dedicating even more of their paycheck toward fuel. Just three years before that, however, gas consumption took up less than three percent of the average American household’s income. Fuel savings, one of the best selling points and reasons to get a hybrid vehicle, will vary each year.

To see if the savings are worth it in this economic environment, the Department of Energy offers a helpful calculator for figuring out your potential gas savings. To use it, plug in details about both your potential hybrid vehicle purchase (fuel economy for specific hybrid models can be found here) and your current vehicle or the gasoline-powered vehicle you’re considering. You may be surprised by the results.

Cost of Fees and Taxes May Rise

Just because you’ll be gassing up a lot less in a hybrid doesn’t mean you get to bypass the average 48.29¢ per gallon in state and federal taxes on gasoline. Additionally, five states have already imposed fees on EV, PHEV, and hybrid cars—Colorado, Nebraska, North Carolina, Virginia, and Washington—and you can expect other states to follow. Wisconsin, for example, is planning a $50 annual fee, and Oregon is looking to charge all drivers based on the amount of miles they travel. On the other hand, some states do not require emissions tests for hybrids, so money saved there could offset extra fees.

Buying a hybrid car is a long-term financial decision, because you’ll need to own it for many years to recoup your initial higher purchase price through fuel savings. Are you a person who likes to upgrade your car every few years? Then this is probably not the best financial decision for you. However, if you keep a car until you drive it into the ground, you might want to start your research.